Republic To Look Harder At Deals

September 2, 1999|By ANTONIO FINS Business Writer

Stung by a 39 percent thrashing of the company's stock in the past week, the top official at Republic Services said Wednesday that the Fort Lauderdale trash hauler will be much stricter in assessing companies it intends to purchase.

"A lot of people [making acquisitions] get caught up in chasing the deal instead of the economics," said CEO James O'Connor. "We're going to be much more disciplined in acquisitions, in our reviews."

Like its former parent company, H. Wayne Huizenga's auto conglomerate AutoNation, Republic Services also grew rapidly over the past several years by playing the acquisition game.

Purchases of smaller companies across the country helped boost revenues in the first six months of 1999 to $859.1 million, a 35 percent increase when compared with the same period last year.

But O'Connor, a former senior vice president at Waste Management who joined Republic Services in December, now believes that one of those purchases was based on forecasts that were too rosy.

Those properties, plus 11 transfer stations and 136 garbage routes in 20 different U.S. markets, were expected to raise sales by $160 million.

While planning profit forecasts, however, O'Connor said Republic Services analysts overestimated how much money could be generated from volume and pricing at landfills in Los Angeles, eastern Pennsylvania and Detroit.

"A lot of this is founded on the fact that we set expectations too high," said O'Connor. "The landfills we got in the Waste Management divestiture were second-tier assets, and we understood that. But we didn't appropriately estimate how much it would cost to get the material there."

As a result, Republic was forced to tell Wall Street analysts on Sunday that earnings would be about 7 percent less than originally expected.

The company is now expected to come up about 6 cents to 8 cents short of its target of $1.25 in per share earnings.

The turnaround proved costly: The company's shares immediately got trashed on the New York Stock Exchange, falling $6.38 to $10.63 on Aug. 30. Shares closed at $10.63 again on Wednesday, down 25 cents, and are off 58 percent from their 52-week high of $25.50 on June 30.

Unfortunately, O'Connor said, there is not much the company can do about those sites -- and the inaccurate projections -- right now.

Instead, he said the company has to wait until market forces permit increases in prices without deflating volume in those locations.

But he vowed the company would not repeat the mistakes made in those deals when making future purchases.

Antonio Fins can be reached at afins@sun-sentinel.com or 954-356-4669.